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She loses things, like her tv, her movies, her scooter, her bike, her barbies, her other dolls, her allowance. I once told her if she did something again, she'd have to pay me for misbehaving out of her savings bowl where she's saving her allowance for the new Tinkerbell movie.
It works for us. I have no problem with spanking, but it's only came up twice in her 5 1/2 years, we use it as a last resort and haven't had to for nearly 2 years.

Spanking is a horrible idea. It only teaches children to be violent. There have been many studies to back up that claim. I would do time-out or take things away and explain why. I would also look into what you are feeding them because Red#40 and High Fructose corn syrup can effect the way kids act.

Define really bad. I can't think of a single thing that my son has done that would warrant hitting him, not even close. Actually I hardly ever need to punish him at all. The worst thing he does is refuse to clean his room and that's just a case of making him stay there until it's done. Once in a blue moon I take away a toy but that's a rare occurrence. If you raise them right and treat them as human beings then there should be very little need for punishment let alone physical violence.